Markey: Chinese Oil Deal Would Expand Foreign Oil Company Access to Free Drilling in Gulf, Rob Taxpayers of Royalties

Press Release

An attempt by the state-owned Chinese oil drilling corporation to buy the Canadian company Nexen would expand state-owned holdings of drilling leases in the Gulf of Mexico that do not require royalties to be paid to U.S. taxpayers, even though they are on public lands, Rep. Ed Markey (D-Mass.) revealed today. Because of this potential windfall for China at the expense of U.S. taxpayers, Rep. Markey today asked Ken Salazar, Secretary of the Department of Interior, to exercise his authority under the Outer Continental Shelf Lands Act to prohibit the transfer of these free-drilling leases to CNOOC.

"The fact that oil companies are drilling for free on nearly 150 leases in the Gulf of Mexico is already an affront to taxpayers that will cost them tens of billions of dollars," writes Rep. Markey, the Ranking Member of the Natural Resources Committee. "To allow royalty-free leases to be handed over to the Chinese government would add insult to injury."

There are currently nearly 150 active deepwater drilling leases in the Gulf of Mexico on which companies do not pay any royalties to the U.S. taxpayer, due to an oil company lawsuit over the Deepwater Royalty Relief Act (DWRRA) of 1995. However, the leases that could be transferred to CNOOC are just the tip of the iceberg.

Rep. Markey also revealed in his letter to Secretary Salazar that there exists widespread ownership of faulty royalty-free leases by subsidiaries of many state-owned oil drilling companies. Of the 150 royalty-free leases in the Gulf, U.S. subsidiaries of state-owned oil companies hold full or partial ownership stakes in nearly 40 percent of them.

Among those leases:

--Italy's state-owned company, ENI, holds full or partial ownership in 28 active leases.

--Brazil's state-owned company, Petrobras holds a stake in 22 active leases.

--Norway's Statoil holds 26 of these leases.

--Columbia's Ecopetrol holds 3.

--In total, these 4 state-owned companies have extracted for free more than 65 million barrels of oil and more than 125 billion cubic feet of natural gas from these leases.

"By allowing royalty-free production by these state-owned companies to continue under these leases, American taxpayers are, in effect, being forced to subsidize these foreign governments," continues Rep. Markey. "It is unacceptable for these national oil companies, and therefore these foreign governments, to continue to enjoy this ongoing subsidy from the American people."

In fact, taxpayers haven't just lost out on royalties from foreign drilling companies, they've actually given them refunds. As the letter notes, the oil company court challenge to the DWRRA forced the U.S government to return royalties paid for past production to these state-owned companies, plus interest. Taxpayers refunded more than $345 million to ENI and more than $61 million to Statoil. In all, the federal government was forced to hand these national oil companies more than $410 million in refunds plus interest for past production.

Rep. Markey asserts in the letter that Secretary Salazar can use his authority provided under the Outer Continental Shelf Lands Act (OCSLA) to prevent the transfer of Nexen's leases that allow for free drilling to CNOOC as part of any acquisition. That law says that the transfer or sale of leases must be approved by the Secretary.

"I urge you to exercise the authority provided to you under the Outer Continental Shelf Lands Act to not approve any transfer to CNOOC of Nexen's ownership stake in leases that do not require the payment of royalties to the American people," concludes Rep. Markey. "I also believe that you should use all means available to you to seek to recover future royalty payments that are rightfully due to American taxpayers from all DWRRA leases that currently allow oil companies to drill for free beginning with those leases held by foreign state-owned oil companies, so that the American people can receive a fair value for the oil and natural gas that is produced on their public lands."

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